When Installation Equals Acceptance: Bombay High Court Rules on Contractual Obligations

The Bombay High Court has delivered a significant ruling reinforcing the limitations of rejecting goods after they have been processed or installed. In Godrej And Boyce Manufacturing Company Limited vs. Remi Sales and Engineering Limited , Justice Sandeep V. Marne upheld an arbitral award, clarifying that the act of inserting industrial components—specifically stainless steel tubes—into heat exchangers constitutes "acceptance" under Section 42 of the Sale of Goods Act, 1930.

The Backdrop of the Dispute

The conflict arose from a 2016 purchase order for 8,339 stainless steel seamless tubes intended for a refinery heat exchanger in Oman. The Petitioner, Godrej & Boyce, accepted delivery of the tubes and proceeded to integrate them into their manufacturing assembly.

Within months, Godrej reported "pitting and rusting" in a fraction of the tubes. Following various meetings, the parties agreed to a cleaning process, after which some tubes were re-inserted. However, claiming further defects, Godrej ultimately sought to reject the entire consignment and withhold payment, leading to an arbitration initiated by the supplier, Remi Sales and Engineering Limited. The sole Arbitrator ruled in favor of Remi, awarding them the invoice amount along with interest, a decision Godrej challenged under Section 34 of the Arbitration and Conciliation Act, 1996.

Arguments in the Courtroom

The Petitioner, Godrej, argued that the arbitration award was riddled with patent illegalities. Counsel for the Petitioner contended that Clause 6(b) of their purchase order effectively overrode the provisions of Section 42 of the Sale of Goods Act, allowing them to reject goods even post-installation. They asserted that the Arbitrator had ignored crucial evidence regarding the rusting of the tubes, which they claimed rendered the tubes non-compliant with ASTM standards.

In response, Remi Sales maintained that the Arbitral Tribunal—the master of facts—had correctly determined that the tubes complied with all specifications. They argued that because Godrej had fully used the tubes, the deeming fiction of "acceptance" under Section 42 had been triggered, extinguishing the buyer's right to reject the goods.

The Court’s Analysis

Justice Sandeep V. Marne emphasized that the scope of judicial interference under Section 34 of the Arbitration Act is extremely narrow. Addressing the core question of "acceptance," the Court noted that once the buyer acts in a manner inconsistent with the seller’s ownership—such as, in this case, installing the tubes into a machine—the law deems the goods accepted.

Regarding the Petitioner’s reliance on Clause 6(b) of the purchase order, the Court observed that the clause created a right to withhold payment but did not create an open-ended right to reject goods that had already been consumed or put into operation.

Key Observations

• On the concept of acceptance: "Section 42 creates a deeming fiction where the goods are deemed to have been accepted when the buyer intimates to the seller that he has accepted them or when the goods have been delivered to the buyer, who acts in relation to them which is inconsistent with the ownership of the seller."
• On the outcome of the factual inquiry: "The Tribunal has taken into consideration overwhelming evidence on record for holding that the supplied tubes met the specifications. Also, it bears mention that Petitioner’s case is mainly about development of defect after the tubes were put to use."
• On the limitation of rejection: "The act of using or consuming the goods would certainly constitute acceptance of the goods by the buyer. Thus, the broad statutory scheme under Section 42 is such that the moment the buyer deals with goods, the act is treated as inconsistent with seller’s title."

Final Decision

The Bombay High Court dismissed the petition, affirming that once the Petitioner elected to clean and reuse the tubes, they could not later revert to a position of rejecting the entire lot. The Court confirmed that if any defects persisted after use, the remedy would have been a claim for breach of warranty rather than a unilateral rejection of the goods.

While the Petitioner was denied relief, the Court allowed a six-week continuation of the existing bank guarantee to facilitate the Respondent's access to the funds deposited with the court. This judgment reinforces a critical standard in commercial law: parties cannot "blow hot and cold" by accepting goods for use while simultaneously reserving the right to treat them as rejected for any future perceived defect.